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Bangchak Petroleum

Power business: Hero of 2Q14 BUY

Bangchak Petroleum Plc (BCP)

1Q14 posts strong profit growth as expected

- BCP reported 1Q14 net profit at B1.56bn or the aggressive rebound of

126.9%qoq, thanks to the following factors. 1) Market GRM surged

33.0%qoq to US$6.41/barrel as a result of seasonal effect. At the same

time, hedge gain and stock gain declined 73.9%qoq and 92.4%qoq to

US$0.31 and US$0.16/barrel, respectively, resulting in net GRM of

US$6.88/barrel. 2) Marketing margin of a retail business increased

significantly by 36.7%qoq to B0.67/liter in this quarter because there was

not price competition like in 4Q13. 3) The company began to recognize

income from the 8-MW solar power plant phase 3 unit 1 since March 19,

2014, increasing profit from the power business by 7.0%qoq. 4) A Fx gain

of B247m was booked as a result of the Baht appreciation. Overall, 1Q14

net profit accounted for 38.7% of our FY2014 profit forecast.

- Power business: Hero of 2Q14

We maintain our earnings forecast for FY2014-2015. The normalized profit

in 2Q14 is projected to weaken from 1Q14 due to a 46-day planned

shutdown (May 1 to June 15, 2014), which is longer than a usual overhaul

shutdown of 30 days, since the company will have the fire-damaged

refining tower changed, which will also increase its refining capacity from

80,000 to 100,000 barrels a day. The shutdown in 2Q14 will decrease

BCP's utilization rate by 43.9%qoq to only 55,000 barrels a day.

Nonetheless, this negative factor will be negated by the recognition of

income from all units of the solar power plant phase 3 with total capacity

of 48 MW since late April 2014 onward, which is a few months earlier than

projected, and special insurance claims of B500m for the property damage

(still not included in our forecast). Accordingly, 2Q14 net profit would drop

only slightly from 1Q14.

- Dividend yield of 5-6% p.a.

2014 fair value (DCF) is B36. We reiterate to buy BCP as the profit in the

next couple years would show continuous and more stable growth after

the company has been able to recognize more income from the solar

power plant which has certain profit as a result of the power purchase

contract. Moreover, dividend yield of 5.4%p.a. can be expected.

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